A German court ruled Tuesday that a small bank linked to the collapsed British financial company went bankrupt, triggering losses for dozens of small German cities.
Greensill Bank AG was deemed bankrupt by the local court, leaving the city as a likely creditor. Around Germany, at least 12 cities with a combined € 200 million, equivalent to about $ 238 million, in deposits are in a similar situation. Individual depositors are covered by insurance.
Among them is Keny, a small town in southwestern Germany. Like most cities that put money into banks, Ken tries to avoid the small losses that come with negative interest rates.
Bremen-based Greensill Bank, formerly known as NordFinanz Bank AG, was acquired in 2014 by Greensill Capital, which itself filed for bankruptcy on March 8. The bank offers slightly positive interest rates, beating the negative interest rates offered by a growing number of German banks.
The mayor of the city, Stefan Bubeck, said that the city is not trying to get high interest rates, but to avoid negative interest rates. Cities “don’t want our savings to decrease,” he said. Mr. Bubeck is worried that most of the money invested will be lost. We were shocked.
The city said it had diverted € 6 million into three banks offering slightly positive interest rates. He deposited € 3 million – a third of his total reserves – at Greensill in November. The bank offers an interest rate of 0.6%, compared to the minus 0.5% offered by other regional lenders in the city.
Other cities said they shifted reserves to Greensill at a lower price to avoid the guaranteed loss of negative prices. Schwalbach am Taunus, a municipality outside Frankfurt that has € 19 million in deposits in Greensill, estimates that negative rates could cost taxpayers half a million euros a year.
Deposit fees have also forced a growing number of individual customers to shop for better prices elsewhere. In fact many park their money outside Germany, in countries such as Bulgaria and Latvia, use platform service providers. The European Union has domestic guarantees on retail deposits of up to € 100,000. Greensill retail customers will further be covered up to € 75 million each with a separate deposit insurance plan provided by commercial banks.
BaFin, Germany’s financial regulator, froze all bank accounts in Greensill earlier this month after an audit could find no evidence of specific collateral used by big customers to borrow money. BaFin has filed a criminal complaint against the bank with prosecutors, who will decide whether to carry out an investigation. On Tuesday, regulators said a local court started bankruptcy proceedings against the bank after BaFin determined the bank would not be able to repay all customer deposits.
A person familiar with the bank said it was currently estimated that up to € 700 million in deposits out of a total of € 3.6 billion would not be covered by insurance. The majority will likely come from local governments.
Cities have their deposit guarantees if they put their money in pseudo local and regional banks that charge negative rates. Their deposits at commercial banks like Greensill were protected until 2017, when insurance was canceled following an expensive bank failure in which many depositors were urban.
Local governments said they could not see the Greensill problem coming, and were confident about the bank’s investment grade rating from ratings agency Scope Ratings.
“Because of this bank’s rating, we had to take a very safe form of investment for time deposits,” said Schwalbach am Taunus Mayor Alexander Immisch.
In a statement, Scope said it now suspects relevant information about Greensill’s business and risks was withheld from analysts, and that misinformation was provided. A Greensill spokesman referred questions to Greensill Capital bankruptcy administrator Grant Thornton, who declined to comment.
In Giessen, a university town north of Frankfurt, Mayor Dietlind Grabe-Bolz said the city was taking all appropriate steps to deposit € 10 million – roughly one-fifth of the city’s reserves – in Greensill, including evaluating bids from banks brought by the institute. different finances. broker. The money is intended to help cover future expenses such as road repairs and school projects.
Miss Grabe-Bolz has raised concerns about BaFin, who began conducting forensic audits at the bank last summer, but her investigation was only announced this month. Giessen transferred his deposits to Greensill Bank in October and December last year for 0.09% and 0.1% interest.
“While BaFin has already started assigning special investigators without the knowledge of investors, Greensill’s bid is still continuing,” the mayor said. “All of this shows that BaFin has let us down.”
A BaFin spokesman said because of their confidentiality duties, they could not notify the city government and other investors about special audits or other surveillance measures. He added that cities are well aware that their deposits in commercial banks are not guaranteed.
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